Apple Case

Based on the comparisons, discuss anything that Apple may consider to improve (gap), and
propose the potential action plan for improvement (mimic the process of measurement,
benchmarking, identification of gap and then action plan).
A: Although Apple is the leader in this industry, its profit margin decreased in 2013. Apple's
ROE also decreased in 2013. Apple needs to think about how to improve its profitability because
one of Apple's biggest competitors – Samsung, has increased profitability in the past few years.
On the other hand, Apple's asset turnover rate is the lowest compared to all three other
companies. This shows that Apple is not using its assets efficiently and may have internal
problems. Apple's Net income had a significant decrease in 2013. I think the two reasons are
high COGS (leading to low net income) and too much inventory on hand. Apple must find
cheaper materials or labor to reduce that cost. Moreover, Apple should not hold too much
inventory. Instead, Apple should get rid of obsolete inventory on time and always have space
for new products. Apple can solve this type of problem by benchmarking.
Week 6: Please answer the following questions

1) Looking at Apple's supply chain, what differences set it apart from competitors?
A: Apple has strong control over its intellectual properties. That said, Apple can have
strong control over its products and supply chain. That's why Apple can have more than 50%
profit. Because Apple has such strong control over its supply chain, Apple can keep inventory
low. Apple's suppliers or subcontractors give Apple some buffers to do that. On the other hand,
Apple outsources low-value-added products or activities to countries such as China to reduce
costs (indirect costs). This is a reason why Apple's ROA is high. Moreover, in 2010, Apple didn't
have a logistics team. By outsourcing the logistics to 3PL companies such as UPS and FedEx,
Apple can have more assets on hand.
2) What are Apple's key advantages in how it manages its supply chain operations
(use data from the case to support your answer).
A: Because Apple has strong control over its supply chain, Apple can keep inventory low
at a normal time. When demand surges, Apple can ask subcontractors to change their production
plan to meet the demand immediately. These subcontractors give Apple a lot of buffers. Because
of these buffers, Apple can have more money to make other investments. Also, Apple can invest
money in subcontractors to push them to work harder for Apple. The case stated that the
assembling fee for iPhone 5 is $8 per unit (in Foxconn, China). When the iPhone 5 forecasts
were developed, Flextronics (one of Apple's largest component manufacturers) hired 1,500
temporary workers to assemble the cameras.
3) What are the challenges that Apple faces in the future? Implications for supply
chain?
A: First, I think Apple needs to look carefully into its production design. Apple needs to
make some good forecasts because technology grows very fast. Obsolete inventory will
reduce revenue. Second, Apple doesn't have control over the logistics part. In the
future, Apple may need to develop its own logistics team to have vertical integration on
its supply chain.
4) Please propose at least one leading indicator that can be used to measure Apple's

supply chain related performance. Please then explain why it can be a leading indicator.
A: I choose to use "Cash to Cash Cycle Time" as the leading indicator. It can tell us how
long Apple needs to pay off the debt and collect the receivables from customers. Apple has a
shorter cash conversion cycle compared to other companies. Apple has relatively shorter
receivable days, longer payable days, and shorter inventory days. In other words, Apple carries
lower inventory costs. Also, Apple has more cash on hand to run its business. Such healthy cash
flow can support Apple to develop faster than competitors like Samsung from a cash conversion
perspective.
5) Referring to Apple Case and your understanding on Walmart's supply chain, please
discuss the similarity and difference of Apple's and Walmart's supply chains. You may
also refer to the financial analysis report on Walmart
Actions
when you do the comparison in terms of the financial measures.
A: Both Apple and Walmart are the leading business in their industries. They both have
good control over their highly profitable products and the supply chain. However, Walmart is a
retail store that often gets money after sales. This helps Walmart to fully utilize its working
capital. Walmart's asset turnover rate is much higher than Apple's (2.39 v.s. 0.68 in 2010), but
Apple's profit margin is way higher than Walmart's (15.61% v.s. 3.6%). Walmart has its own
logistics team, while Apple does not. Apple outsources some labor and low-value-added
products to Eastern countries such as China, while Walmart mainly focuses on the United States.

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Based on the comparisons, discuss anything that Apple may consider to improve (gap), and

Week 6: Please answer the following questions

4) Please propose at least one leading indicator that can be used to measure Apple's

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